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CPP Investment Board dips toe into U.S. real estate market

Joint ventures with TIAA-CREF will allow fund to invest on a 'very selective' basis

REAL ESTATE REPORTER

The Canada Pension Plan Investment Board has placed its first major bet on the hot U.S. real estate market, teaming up with a New York-based retirement fund manager and investing $500-million (U.S.) in two ventures.

The board has committed $300-million to a joint venture with Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF) that will target underperforming office properties in improving markets. Its U.S. partner will put $312-million into the venture and will be responsible for managing it. The fund is aiming to hold $1.5-billion worth of assets and already has two properties, one near Washington, D.C., and the other outside San Francisco.

The second part of the deal is a $200-million investment in a fund that owns 13 prime properties, also in conjunction with TIAA-CREF. The portfolio includes office, retail and industrial properties across the United States.

Graeme Eadie, senior vice-president of real estate investments at the CPP Investment Board, said the giant pension plan is investing in the highly competitive U.S. market on a "very selective" basis.

"We are not looking to just buy assets and pay top dollar. We are looking for things that are a little off market where we can add value," Mr. Eadie said.

The fund did have some exposure to the U.S. office market through its holdings in Trizec Canada, but lost that when the company was purchased last year.

Yesterday's announcement is part of a general effort by the CPP Investment Board to diversify its real estate holdings outside Canada. Last year, the plan bought office properties in London and has other indirect investments in Western Europe.

With the move into the United States, foreign real estate now makes up about 30 per cent of the portfolio, Mr. Eadie said.

He said the fund will continue to look for other opportunities, primarily in major developed markets. Mr. Eadie said the board, unlike some other major Canadian funds, is not ready to make any big bets on emerging markets. "We are fairly conservative," he said.

Mr. Eadie said the two investments with TIAA-CREF are the result of more than a year of talks. The U.S. pension fund manager has more than $405-billion in assets under management and is best known as a provider of services to the academic, research and medical fields.

TIAA-CREF also has been active in the Canadian market through an investment in a real estate fund that is managed by RioCan Real Estate Investment Trust.

Mr. Eadie said CPP selected TIAA-CREF as a U.S. partner because of its long-term investment horizon and broad knowledge of the market.

The CPP Investment Board manages the funds not needed by the Canada Pension Plan to pay current retirement benefits. At the end of last year, it had $110.8-billion (Canadian) in assets, including about $5-billion in real estate.

© 2007 The Globe and Mail. All rights reserved.

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